Ask Judy O.: What is the difference between a Loan Broker and a Direct Lender?

Hello Judy O.: What is the difference between a loan broker and a direct lender?

Answer:  There are two advantages to working with a loan broker.

One is the personal service that is necessary to expedite the loan during a very short sale process. You have someone who is accountable every step of the way.  With that said, loan brokers work on a commission basis and there is a fee for this service.
Also, a loan broker has a broad selection of loan options with major banks and other lenders and can shop rates for you.
When you go to one bank, the process can be personal, initially.  But, after the application process the file generally goes into a fairly anonymous pipeline with little accountability or much incentive to adhere to the time lines of the loan contingency period. Additionally, a bank only has the option of offering their own loan products. So you don’t get the broad picture of your loan options.
Hope this is helpful.

Ask Judy O.: Why should I stage my home when I sell it?

Hello Judy O.: When I put my house on the market, is really necessary for me to stage my home and what is staging exactly?

Answer:  This is one of my favorite topics to discuss, because it has several correct answers. As a general rule, ALL houses need some staging. Staging is a way to maximize the presentation of your home to reach the greatest pool of buyers and should be the goal of every seller. It gives buyers a sense of the possibilities–how the rooms could function as well as a sense of scale.  For instance, what might be an awkward vestibule or tiny bedroom could be re-envisioned as a compact guest bedroom, reading room or home office through staging. Most buyers want to be seduced into their purchase and have the reasons to justify their investment. A well-staged home is the best tool for overcoming buyer uncertainties.

Staging can be simply de-cluttering, doing some paint touch-up and furniture rearrangement or as full-blown as investing in the services of a professional stager. These decisions are predicated both on budget and an honest assessment of the condition of the house itself and your furnishings.  In the case of merely using your own furnishings, it becomes a matter of judicious editing, and often I can help with this.   You can find a great example of a home staged with the sellers own furnishings on our “sold” listing at 11580 Cerro Gordo.  In my professional opinion, it is always better to stage your home. You will inevitably recoup the costs of such an enterprise. When measured against a price reduction of $25,000-$50,000 because  the house is not selling due to not showing well, the cost of staging is money in your pocket.

What question do you have?  Use my Contact page and ask me a question and see your answer here on Distinctive Properties LA.


Ask Judy O.: How do we negotiate for repairs?

Dear Judy O.: Some first-time home-buyers of mine in escrow asked -  How should we handle negotiating a credit for repairs?

Answer: I know that you are looking at a lot of out-of-pocket costs after your purchase to bring this property to where you want it to be. We have discussed this a number of different ways during the past few weeks–if not month. In the bigger picture though, if you did put $30,000 into this property – adding that to the purchase price – you would own a home at $545,000 with an amazing number of pluses you could not find at this price. After more than a year of looking, I think you know: A 3 bedroom 2 bath home with usable attic space, sitting on a 12,000+ sf lot with views, down a semi-private road in a great location is not going to be found for less than $550,000.

My point of reference with respect to inspections and credits is generally this: Anything the parties negotiate as a credit is really “good faith” money. It is not meant to be a dollar-for-dollar compensation for repairs that the buyer intends to make. The buyer can always cancel the transaction if they feel the value is not there or if they feel these costs are beyond their comfort level. That’s why there is an inspection contingency. I think you need to feel that the value is in your location. If you don’t, then I suggest you cancel this escrow and look for something newer and one without so many repairs.

If you have a question, you can even use “snail mail” me.  My office address is 1714 Hillhurst Avenue, Los Angeles, CA 90027.

Ask Judy O.: Does it matter what season we sell our house?

Dear Judy O.: We are contemplating downsizing and selling our home.  Does it really matter what season we sell in?

Answer:  Traditionally, springtime has always been the busiest and best time to sell your home.  Most families with school age children want to be situated before the beginning of the school year and therefore focus on the house hunting process after tax season and before the summer vacation months.   This is the time when inventory is the highest.  With that said, sometimes it’s it can be a good strategy to market your house in slower months (January-February or September-November) because there may not be much inventory in your price point or location, creating  increased interest in your property.  Here in California where the profile of the buyer is so diverse and the inventory for good homes never quite meeting demand, the best time to sell is always going to be when it is best for you.

If you have a question that you would like me to answer, contact me via the Contact Page – Judy O.

Ask Judy O.: We own our home and want to upgrade to a larger one. How should we proceed?

Ask Judy O.: We own our home and want to upgrade to a larger one. How should we proceed?

Answer: If you are able to upgrade and purchase without selling your home first, a lender’s view of your qualifications for a new home purchase will include the debt on your current home.  For a lender to use the rental income on a departing residence, then you must have a minimum 30% equity in the home (70% loan-to-value).  If you do not have this equity position, you must qualify for the new loan carrying both the old housing payments and the new one.  No rental income will be used to qualify in this case. Since lending guidelines keep changing – get clarification from your loan broker on this.

If you need more than your equity to upgrade and get into another home, the simplest way to go is to do a cash-out refinance or a re-fi with an equity line. It is important to find a loan without a pre-payment penalty.  Bridge loans are rarely used anymore because they are too expensive. Again, your loan broker can provide you with those details.

Your ultimate goal should be to have your new home characterized as your primary residence – since the interest rates are lower than those for purchases of income property.

Finally, the other way to go, which could also be considered an upgrade, is to sell your home and rent while you look for a new home.  This frees you up on many levels.  The down side to this is the aspect of having to moving twice.

What question do you have?  Use my Contact page and ask me a question and see your answer here on Distinctive Properties LA. Thank you for reading my post about how to upgrade.

Ask Judy O.: How do I choose a real estate agent?

Dear Judy O.: I’m a first time buyer.  I’ve just been pre-approved for a loan.  How do I go about choosing an agent to represent me?

Answer: Congratulations on taking the step to become a homeowner!  Good for you for jumping into this crazy market.  There are two things to consider when choosing an agent: The agent’s knowledge/experience and the interpersonal chemistry between you and the agent.

Let’s start with knowledge and experience.   Generally, I would say your goals would be best served by working with an experienced agent.  A referral from a friend or colleague is the probably the best source.  I would get a couple of referrals and meet with both agents in their respective offices.  During this meeting you can discuss your mutual expectations and get a sense of their working style and knowledge base.  A good knowledge base would include:  Being conversant about the current housing inventory in the neighborhoods you are interested in, knowing the offer process itself and what to expect during negotiations, being familiar with lending practices and appraisal issues and generally what to realistically expect during an escrow (including inspections) so that the transaction closes happily.

If you don’t have the benefit of a referral, another source would be open houses.  At an open house you can chat up the agent hosting it—agents love to talk !  Then, if you think you want to take the discussion further, make a follow-up appointment with them.

But let’s say your best friend’s boss’s niece just got her license and you think you might like to work with her.  While a rookie agent obviously is not going to have the experience to draw on, the sale process could work out perfectly fine if she is receiving the mentoring of her broker or a more seasoned agent.

The second aspect of finding a good agent has to do with chemistry. While liking the agent is important, your mutual communication style has to be compatible.   Is the agent accessible and responsive (i.e., via emails/calls or texts) in a way that you consider timely?  Is the agent happy giving you detailed answers to your questions or do you feel you are getting the short answer each time?

I think it’s perfectly acceptable to have a couple of interactions with an agent before committing to them as “your agent”.  Go out and look at some homes together and you will see if there is a fit.  Home sales can be tricky. They are rather nuanced types of transactions with a strong emotional component, so take your time in selecting an agent.

Ask Judy O.: Did we buy the right house?

Dear Judy O.:  Can you take us off your mailing list for new listings?  It’s funny, my husband and I both find that our blood pressure rises a bit when we see them. His because he’s so happy in this house and doesn’t want to relive the house hunting experience… and mine because, happy though I am here, I live in fear that something in our former neighborhood is going to come up.

That said, we do absolutely love our new place. And we feel like we got a great deal. The house two doors down that was just ‘flipped’ (smaller and with some rather boring choices) is now in escrow and the seller told us he had two offers that were 50k more than our house!

Answer: Yes, of course I’ll take you off our mailing list.  I fully understand.  I hope you aren’t harboring regrets about the house you wrote an offer on and didn’t get.  In the larger picture, you made the better choice… and in the long run I sense you’ll fully embrace the move to your new neighborhood, because it’s so wonderful there.  Additionally, when the home down the street closes escrow you will have increased the ‘equity’ in your own property by $50K – with only a few short months of ownership. Pretty awesome in my book!

Ask Judy O.: What do I need to disclose to buyers?

Hi Judy O.: I am planning to sell my home soon and am wondering if I need to disclose that I was burglarized last spring?

Answer: Yes.  Any information that would effect a buyer’s decision to purchase your home needs to be disclosed.  This extends to providing information about the immediate neighborhood as well.  Lawsuits that are generally brought against a seller relate to non-disclosure, i.e., fraud.  Even if it wasn’t the seller’s intention to withhold information and inadvertently did, they could leave themselves vulnerable to a lawsuit.

When I give a seller all the basic disclosure information to complete, I strongly suggest that they prepare an addendum detailing all the work done on their home during their ownership i.e., any idiosyncrasies about the house, any problem neighbors, etc and have their house file available to the buyer for review during inspections.

Here is a good example of what I mean:  When a seller asks “Why do I need to disclose that there was a water damage from a clothes washer overflow if the floor is now fixed,?” I tell them that all property history is relevant.  Assume, for example, the water damage wasn’t disclosed and the buyer subsquently discovers a latent mold problem in same area that becomes quite costly to fix.  If it can be traced to the water damage you repaired, but may not have been remediated properly, you the seller could end up in a lawsuit for not disclosure of the washer overflow.  On the other hand, if the information is disclosed at the outset of the transaction, then the burden is on the buyer to do their investigation and the parties can deal with it at that time.

My best advice to sellers is Disclose, Disclose, Disclose.  Have the disclosures available during the marketing period before an offer is made.  You might say “Won’t that run the risk of turning off a potential buyer.”  My response is two-fold:  (1) If a buyer is nervous with any of the information before getting into escrow, then you know they are probably not the buyer for your home and will not make it through inspections.  It’s a way of vetting a buyer  (2)  Information that is provided early when the house is being marketing—during the “falling-in-love” phase–is absorbed more easily by a buyer and builds a good faith relationship between the parties.  Surprises–well into an escrow–are the bane of any transaction.

Ask Judy O.: Listing Disappointment

Dear Judy O.: I have had my home on the market now for 2 months and it is not selling. I feel that the agent is not doing an effective job and I want to cancel our 6-month listing agreement.  He won’t release me from the agreement so now I can’t do anything for another 4 months.  Is this legal?

Answer: It is unfortunate that your home is not selling and that you have lost confidence in your agent. If you have had your home on market for two months and not received an offer, obviously some aspect of the process is not working correctly.

But before jumping ship here, I would at least have a frank conversation with your agent and really lay all your cards on the table.  Dissecting the bits and pieces of the marketing process may be easier and produce a better outcome than starting over with a new agent.  As the seller, you are a pivotal part of the sale process and an open communication with your agent is essential.

When you decided to work with this agent, you obviously started out with some trust in him and his marketing plan.  I would sit down with him and look at the tools being used to promote your home.  Perhaps some of them may need to be adjusted, changed or others added.  How did you arrive at the list price for your home? Did you review the recent sales activity before pricing your home so that your home was positioned correctly? What were buyers saying about your home in the first week or two of marketing and was your agent getting requests for showings?  Did you ever discuss taking a price reduction?

If there is truly an impasse, the next step would be to meet with the agent’s manager, since the contract itself is really between you and the broker (i.e., the company).  While the broker would have to agree to release you from the agreement, an alternative may be to consider working with another agent in the office who may be a better fit. You can then continue with the marketing of your home through the same broker without a major disruption.

Ask Judy O.: Will a bank-owned seller give credits?

Dear Judy O: Should we even bother asking for credits on the bank-owned house we are buying because we heard banks don’t give credits ? The house is old and the garage is pretty rotten, windows painted shut and bad drainage in the back.

Answer:  I think that you until you go through the process of having your own inspections and subsequently approaching the bank for credits, there is no way to know what the bank is going to do in advance.

Unfortunately, when you buy an old house, there are always going to be things to address.  It’s important to distinguish between the things that are desired by you versus those that are actually critical.  There are “upgrades” and there are “necessities”.

With respect to old detached garages and their condition or ability to house a modern car:  I typically tell clients that old garages like this are a “gift with purchase.”  They’re rarely in good shape and really are a bonus if you can get some use out of them structurally.  You likely have a driveway which gives you off-street parking, which is a good thing.

With regard to the windows, I think that in the space of a day you can probably get a handyman to at least chip away at the old paint and get them to open.  New sash cords and making the windows operable may be a wish list item and something you may need to save for.

Regarding drainage issues:  Historically, most homeowners never paid much attention to drainage and runoff until recent years.  But, as homes keep getting older, technologies have improved and access to hands-on ways of dealing with potential problems became more available to the homeowner.  There are ways to deal with drainage that are not expensive.  In a transaction, issues relating to drainage or cracked/failed retaining walls that don’t impact on the house itself are in the realm of  an “upgrade” or improvement to a property.  A seller rarely will pay for this type of request.

If this were an investment property that someone bought for its current price and upgraded, would it be worth approximately 25% more in today’s market?  If you use this formula you can determine if  there’s already equity in the house at its sale price.  But you’re the ones that will ultimately be the arbiter of its value.  I always say, it never hurts to ask for credits, but especially with a bank owned, don’t expect too much -  if anything.

Have a burning Real Estate Question?  Please send your questions to Ask Judy O.